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It's simply not true that if EV is positive, you should bet all of your money. There's a classic formula called the 'Kelly criterion' to calculate how much of y
by joosters 7y ago
It's simply not true that if EV is positive, you should bet all of your money. There's a classic formula called the 'Kelly criterion' to calculate how much of your money should be bet given your expected edge. The original paper (which came out of Bell labs, based upon noise over a transmission channel!) is a good read:
https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion
http://www.herrold.com/brokerage/kelly.pdf http://www.herrold.com/brokerage/kelly.pdf
- 6gvONxR4sf7o 7y agoI think you misread me. That's exactly what I'm saying. Or I misread you and you aren't actually trying to disagree.
- joosters 7y agoOops, sorry, I misread your comment and thought that you were saying the opposite!
- lifeisstillgood 7y agoCan I check something - reading the wikipedia article on Kelly Bets it seems that one should take the expected chance of winning, double it and subtract 1.0 and use that as percentage of bet size So when I win 3/4 times, that's .75 -> 1.5 -> .5 of my total wealth. But this basically means never gamble till the odds are in your favour. (ie above .5 chance of winning) What does this say about founding a startup?
- QuesnayJr 7y agoMost people find the Kelly criterion terrifyingly aggressive.
- joosters 7y agoYes, although it is mathematically the ‘best’ way of increasing your bank, it is more aggressive than most people would be comfortable. IIRC, at any point in time, you have a 50% chance of losing half of your wealth at some point in the future, when following Kelly staking. Most people choose some fraction of Kelly stakes in order to be less aggressive